Postal Reform: It's Time to Get Real

Clearly, the U.S. Postal Service has real problems, and now these problems have become very public.

On March 2, the USPS Board of Governors sent separate but identical letters to President Bush and Rep. John McHugh, R-NY, former chairman of the House subcommittee on the postal service. The letter states that if the postal service's problems are not addressed soon, they "will begin to have a significant and negative impact on the economy of the United States."

The letter calls for a change to the laws that govern the operation of the postal service. What is most significant in the letter is that the governors have publicly stated that the collective bargaining process with the employee unions, which mandates compulsory arbitration through a third-party arbitrator "with neither understanding of nor responsibility for our role or mission," doesn't work. In other words, according to the governors, the collective bargaining process required by current law needs to be changed.

The letter does provide some guidance as to how the laws that govern the postal service should be changed. This guidance is provided through a reference to reforms made in "other advanced countries" that have been made "along highly commercial lines." Said another way, the governors think the postal service needs a lot more freedom and flexibility in its operation.

Given the governors' position, it was interesting to note a bill that was reintroduced in the current session of Congress by Rep. Connie Morella, R-MD. This bill, known as the Postmaster's Fairness and Rights Act of 2001, had 238 co-sponsors last year. It would require that a neutral outside party be called in to resolve operational and compensation issue disputes between postal headquarters and local postmasters. So it seems that postal management and many in Congress are not on the same page when it comes to giving postal headquarters more flexibility.

Rather, it seems that some in Congress want to take flexibility away from the postal service. It will be interesting to see how many co-sponsors the bill gathers this year, as it may indicate whether Congress is in a mood to give the postal service the freedom and flexibility it says it needs.

Many in industry think that H.R. 22, the bill McHugh introduced last year, should serve as a basis for postal reform. However, that bill, for all its good intentions and balance, would not do much to solve the problems the USPS is facing. Some in industry favor H.R. 22 because of its so-called "equal markup" provision. That means that when postal rates increase, all rates in noncompetitive areas (First-Class, Standard Mail, Periodicals) would go up an equal amount, tied closely to the rate of inflation.

However, that same legislation would permit the postal service to go outside those increase requirements if "exogenous" events should occur. Webster's dictionary defines exogenous as "derived or developed from external causes." It seems clear that at the center of the postal service's problems are the decline in growth and the impending decline in the volume of First-Class mail. That would seem to fit the definition of an exogenous event. In the case of an exogenous event, H.R. 22 would permit the postal service to revert to its current method of rate-making. That method is a filing with the Postal Rate Commission and 10 months of full and contentious hearings. The result of this process would be increases greater than inflation. Depending on the class of mail, the increases could be two to four times the rate of inflation.

The reality is that absent a federal government subsidy, which is extremely unlikely, we should expect postage increases greater than inflation for the next few years. Therefore, we should take time to make sure that all the tough issues are dealt with in postal reform legislation, including:

• How much commercial freedom should the USPS be permitted to have?

• Should there be restrictions on the kinds of businesses the postal service can engage in?

• How much of its monopoly should the USPS have to give up?

• How should the collective bargaining process change?

• Should there be a change to the universal service mandate?

• Should management compensation be uncapped or capped at a significantly higher level than today.

• Should management compensation include private-sector-type bonuses based on goal achievement, profitability and productivity?

• Will there be changes made to the way appointments are made to the Postal Rate Commission and the Board of Governors?

First, universal service has always been considered a sacrosanct obligation of the postal service. But delivering less mail to more delivery addresses is a sure path to spiraling rate increases. Some may recall when mail was delivered twice a day. It makes sense, and there is historical precedent for the postal service to take a fresh look at how it provides delivery service to this nation. For example, do we still need six-day-a-week delivery? Does delivery have to be made to a front door slot, even if that slot is 50 feet from a curb? Does the postal service still need to have physical presence throughout the country? Is there some other way to provide even better postal services in a less costly manner?

Second, it seems clear that for the postal service to remain viable, it will need to get its labor costs under control or perhaps more properly in line with its workload. This can be achieved in several ways. Rightly or wrongly, many eyes are focused on total staffing and unit wage costs. To ensure labor some degree of protection, or perhaps self-defense, an amendment was added to HR 22 that guarantees labor a seat on the Board of Governors. While considered a controversial amendment, it's normal corporate governance in Europe. If it can work in Europe, it should work in the United States. Perhaps a broader view should be taken, and the method of making all appointments to the Board of Governors should be reviewed as part of any postal reform legislation.

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